The Feds Worst Nightmare - Dylan Jovine

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The Feds Worst Nightmare

65 cents.

Thats all it takes to kill the bull.

65 little pennies – and every investment you own is now at risk.

What on earth am I talking about?

Let me explain:

The average American worker made $26.63 an hour last year.

Thats .65 cents, or 2.5%, higher than it was the year before.

In other words, the amount Americans are making per hour rose by 2.5% last year.

Ladies and gentleman meet the Feds worst nightmare: Wage Inflation.

Here’s why:

Wages make up almost 70% of costs the average company has.

Let’s say you own stock in Company A.

Now Company A generated $1,000 in sales last year and made $100 in profit.

That means that Company A had costs of $900.

$ 1,000 revenue
–    900 costs
=    100 in profit

Well almost 70% of that $900, or $630, are labor costs.

(The other $270 are costs for things like software, machines, services, etc).

In other words, 70% of every dollar a company spends is to pay you and me.

Why is this the Feds worst nightmare?

Rising wages mean inflation. Real inflation.

Not the kind of inflation people have warned about prematurely for years.

The kind that only comes with rising wages.

The kind that makes the Fed have to raise interest rates to tame.

In short, if wages continue to rise you will see the Fed begin to increase interest rates at a pace we haven’t seen in a very long time.

And if the Fed starts to raise interest rates, both the stock market and the bond market will go down.

So take a look at what you own.

Ask yourself which are the most sensitive to a rise in interest rates.

Keep a close eye on those in particular.

We know the Fed now is.

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